At least we don't have to worry about inflation. That's the gist of the latest producer price report -- always a harbinger of broader consumer price shifts -- released by the U.S. Labor Department this morning.

Producer prices rose a scant 0.1 percent in February, and the "core rate" (a key for determining core business expenses because it excludes more volatile food and energy prices) rose just 0.2 percent; each was below the Bloomberg News consensus estimates of 0.4 percent and 0.1 percent, respectively. Those numbers follow a 0.8 increase in January and a -1.9 percent decline in December 2008. So, despite the vast flood of new federal money and the largest government spending package in several generations, prices don't look to be going anywhere anytime soon.

It's still goods chasing dollars

In the rest of the report, the Producer Price Index decreased -1.6 percent in the past 12 months, with the core rate rising 3.9 percent. The Bloomberg News 12-month consensus estimates had predicted upticks of 0.1 percent and 3.8 percent. While some economists will view the 3.9 percent rise in the year-over-year core rate as still being too high, other experts will point out that the figure likely reflects costs that had worked themselves into the system prior to the recession's start.

Maxwell Clarke, chief economist for IDEAglobal in New York falls in this camp. "It's too many goods chasing too few dollars and until that changes, there is pressure [by companies] to keep prices down." Clarke told Bloomberg News Tuesday.

In February, intermediate goods prices fell 0.9 percent; finished goods decreased 1.6 percent; raw materials fell 4.5 percent; computer prices declined 4.5 percent; food dipped 1.6 percent; energy prices increased 1.3 percent.

The report is likely to gladden the heart of the nation's top economist, U.S. Federal Reserve Chairman Ben Bernanke, as it will help him fend-off criticism that the expansion of the Fed's balance sheet to cope with the financial crisis will lead to "out-of-control" inflation. Last week, Bernanke said the Fed is "not anticipating inflation," adding that the Fed has the tools available to maintain price stability.

Economic Analysis: Overall, a mild February PPI report. What we're seeing now is the effect of record-high oil prices being drained from the system, and the deflationary impact of lower demand, stemming from the U.S. recession. There is always the danger that core PPI could spike on a sudden increase in demand, but realistically, given the current state of affairs, the greater threat to the economy remains deflation: the U.S. is averaging about 500,000 lay-offs per month - a trend that tends to lead to goods piling up on stores shelves, which ultimately leads to price cuts.

Bottom Line: Inflation at the business level remains low, so the Fed can continue to proceed full-speed-ahead with quantitative easing to help stimulate the U.S. economy.

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